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Why Does Income Inequality Exist? – Executive Summary

Why Does Income Inequality Exist? – Executive Summary

EXECUTIVE SUMMARY

The Bible speaks at length about our uniqueness. We are created in God’s image and are matchless, just like a snowflake. We are also commanded to use our unique combination of skills and abilities to glorify God and serve others. Our unique skills allow us to make a special contribution to the world we live in, not just in the church or on the mission field, but through our work.
Because we are uniquely created, we are endowed by Christ with a specific set of gifts. We can further the Kingdom of Christ by knowing our gifts and pursuing them with excellence. Economists refer to this as comparative advantage. People are served best when they focus on the production of things that they can produce most efficiently (at the lowest opportunity cost) and avoid engaging in the production of goods or services for which they are costly producers.

Comparative advantage is the reason that I am an economist and not a professional singer. I love to sing but am not naturally gifted, so the time and energy I would have to put into becoming good enough to serve others through that is wasted. This diversity of gifts allows us to serve others through market exchange. I can open a dry-cleaning business or run a restaurant if those are my gifts. By pursuing that with excellence I am not only awarded an income, but it allows me to serve others. Because gifts are different and value in the market place is subjective, incomes will be different. They are different because we are created differently. Income inequality is then inseparable from a fallen world in which scarcity abounds.
The market is only capable of rewarding through profit and it punishes with losses. These are in terms of dollars. Because the goods and services we bring to the market are valued subjectively by the purchaser, income inequality is a fact of economic life and economics pervades all of our life choices.

That said, we as Christians are called to seek justice and to care for the poor. We must be at the forefront of this discussion on income inequality – understanding where it is natural, and challenging the status quo where it is unjust. Corruption and injustice that cause poverty must be eradicated. Christians must also be leaders in cultivating and protecting an economic environment that creates opportunity for those in poverty to enjoy upward mobility through the dignity of work.

This paper looks at some of the economic and Biblical reasons why income inequality exists. The following are the primary findings of this research:

Diversity is a Biblical premise of Creation. We are born with different gifts.

By focusing on our gifts we can unleash our comparative advantage and bring value to the marketplace by serving others.

In a free society, absent cronyism, disparity of wages is not a sign of injustice.

If we care about a society that reduces poverty and assists the poor, we should be concerned not about income inequality but the relative prosperity of those at the bottom and their income mobility.

An opportunity society is the best way to unleash the creativity and dignity with which we are created and serve others with our gifts.

We assert that income inequality is a natural part of the human condition. We are created uniquely and that means that there is no universal Biblical standard for income equality. The question that must be addressed Biblically and through public policy is the relative prosperity of the poorest among us and their ability to gain income through the pursuit of their gifts. To that end, we need an opportunity society which embraces our uniqueness, unleashes our creativity and potential and serves the common good. Markets have empirically demonstrated that they are better than any other system at lifting the poor out of destitution.

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About IFWE

The Institute for Faith, Work & Economics™ (IFWE) is a non-profit, 501(c)(3) Christian research organization committed to promoting biblical and economic principles that help individuals find fulfillment in their work and contribute to a free and flourishing society.